Chinese online education platform GSX Techedu in hot water for alleged fraud after Luckin scandal
Published: May 02, 2020 09:43 PM

File Photo: cnsPhotos

US-listed Chinese online education platform GSX Techedu is in trouble after shortseller Citron Research alleged that it has evidence to show that the company is engaged in fraud, including inflating its user base.

Stocks of GSX Techedu suffered a major setback, closing 5.92 percent down on trading Friday after Citron Research said it is obtaining more info to prove the company is the "next Luckin Coffee" for an alleged fraud.

Calls made to GSX Techedu's investor relationship contact went unanswered on Saturday. A customer service personnel said she did not have the right to speak on the issue when contacted by the Global Times.

Citron Research tweeted on Friday that, "The feedback from China on $GSX has been amazing … Citron is getting more info by the hour that proves this is the next $LK."

The tweet is a direct feedback toward GSX Techedu's latest statement, which came after Citron Research's Thursday released its second report about fraud at the Chinese company. In the report, Citron claimed that 40 percent of GSX's 2019 registered users were fake based on a recorded phone call with an employee at a so-called "brushing" outfit that faked orders for GSX.

In response, GSX said in a statement that, "We condemn the report, which is full of false allegations. The report only provides an unsubstantiated recording without any real and valid evidence, which is misleading."

Investors tend to dump stocks under fraud attack by shortsellers, especially after the recent scandals about Luckin Coffee and several other US-listed Chinese companies, Li Yi, a senior research fellow at the Internet Research Center of the Shanghai Academy of Social Sciences, told the Global Times on Saturday.

In early April, Luckin Coffee admitted that it had engaged in certain misconduct, including fabricating certain transactions. While it is still unproven whether GSX conducted any illegal actions, it was been common for some Chinese digital companies to use "brush" orders in the past because their valuations are based on digital traffic, Li explained.

"Plus online education is a tough business, and it wouldn't be hard to understand if there was any wrongdoing like faked orders," Li noted.

Founded in June 2014, GSX listed on the New York Stock Exchange in June 2019.